The Brexit equilibrium

by  Tyler Cowen in

Theresa May has survived, but enough Tories have credibly indicated they won’t support her Brexit plan at least not yet.  She doesn’t want Hard Brexit and doesn’t hate Remain, if the latter can be done sustainably.  She could threaten those Tories with a new election or with a second referendum.  If I were her, I would prefer the latter, as who would want to bring Jeremy Corbyn into the picture?  Nonetheless I don’t think she favors a second referendum per se (too hard to control and manage, no matter what the result).  The threat of a second referendum will be brought to the table, and that means some chance it will happen.  Right now the second referendum contract is selling at 36 cents on the dollar.  That seems correctly priced to me, with the more likely outcome being that enough Conservative MPs fall into line and Theresa May gets her way, more or less.

*A Life of Experimental Economics, volume I*, by Vernon Smith

by  Tyler Cowen in

I learned a great deal from this stimulating and highly unorthodox biography.  Here are a few points from the book:

1. It offers a brief but excellent early economic history of Wichita, where Vernon grew up.

2. Vernon, at the time, was very critical of the use of the atomic bombs on Japan, which he considered to be a disproportionate use of force.

3. In the 1940s he became active in CORE and its fight against racial discrimination.

4. In 1948 Vernon was an antiwar pacifist and a supporter of Norman Thomas.

5. At MIT, Paul Samuelson was a show-off lecturer, according to Vernon.

6. The book has plenty of sentences like: “Grandpa Smith and Uncle Norman were always a delight to have around — lots of jokes, wisecracks, and laughs.”

7. pp.163-164: “The details, as we came to know them, were not the least bit complicated…It was at first thought that she had considered using the knife on herself, but apparently the knife was there because she considered cutting a length from a nearby piece of rope.  Instead, she used a chain.  It was so like my mother — a clean job with no mess.  Everyone who knew her knew that she would never have used the butcher knife.  Even the hanging could never have occurred in the house.  No fuss, no mess; a clean job, with no room for error.”

8. On attention-switching: “I have always had what my mind has gradually come to recognize — by comparative observation of others — as a brain task-switching problem.  When I am thinking, writing, or composing, I pass into another world of experience, a world that is isolated from my surroundings…I experience many chaotic but loosely connected thought.  One, then another, rises and there emerges a hint of how they are to come together.”  He notes that interruptions are very costly to him, and he much prefers one-to-one conversations rather than group dialogues.  Furthermore, he argues that his capacity to “hyper-focus” is more valuable than his measured IQ of 130.

9. There are considerable and interesting discussions of autism, Asperger’s and ADHD.

10. The book offers an excellent account of why Purdue was an important economics department in the 1950s and 1960s.

11. In 1957, Vernon considered going to work for a private railroad and leaving Purdue for St. Louis.  He didn’t.

You can buy the book here, vol.II is good too.

Why I disagree with Scott Sumner on China

by  Tyler Cowen in

U.S. government investigators increasingly believe that Chinese state hackers were most likely responsible for the massive intrusion reported last month into Marriott’s Starwood chain hotel reservation system, a breach that exposed the private information and travel details of as many as 500 million people…

Story here.  And:

Armed with a rich array of personal data, an intelligence agency can also tailor an approach to a person to see whether the individual can be recruited as a spy or blackmailed for information. The passport data, which is not often collected in data breaches, probably was a particularly valuable find for the hackers.

You will note that no one is trying to sell the data.  And this:

The report, citing two people briefed on the investigation, reported China had launched an intelligence-gathering campaign which included hacking into health insurance companies and hacking security clearance files of millions of people living in the U.S. The New York Times reported the hackers are believed to be employed by the Ministry of State Security, which is China’s spy agency. The paper noted that the revelation that China was behind the Marriott hack comes as the U.S. government is gearing up to launch actions against China’s trade that include indicting Chinese hackers that work for the government. The New York Times noted the Marriott hacking isn’t expected to be part of the indictments but does add a sense of urgency to the moves the White House was mulling.

The Trump administration is also planning on declassifying intelligence reports that show China had been trying to create a database of American executives and government officials that have security clearances, reported The New York Times.

I could go on.  I am genuinely unsure what are the economic costs of these mischievous activities, but would note simply that it is sometimes necessary to punch back.  The choice is not free trade vs. protectionism (I strongly suspect Scott and I agree on the economics of trade), but rather a partial return punch now vs. a worse situation much later on.

Does Macron have any new ideas to save the moment?

by  Tyler Cowen in

My opening line for Bloomberg:

The sorry truth is that both progressives and neoliberals still don’t get it, and that seems true in France most of all.

Part of the argument:

In response, people want something beyond more income redistribution (what the left is offering) or more globalization (what the pre-populist right used to offer). People want ideas and inspiration, and when no good new ideas are put forward, the current default seems to be nationalist ideas, including of the less tolerant variety.

Macron doesn’t have any new ideas or vision, however much you might like the old ideas he has embraced. And so, however promising it might have seemed at first, his tenure has accelerated the collapse of the traditional European liberal order. For some time, his approval ratings in France have been lower than those of U.S. President Donald Trump.

And here is the least central paragraph:

The one intellectual group that really gets what is going on right now are the much-maligned libertarians. For decades they have been told that they are too analytical, that they lack empathy, that they don’t have much to offer the public in the way of inspiration. For all the (mostly failed) attempts to pretend otherwise, that is mostly true — and libertarians have to hope that analytical perspectives become more ascendant.

Oh, and don’t forget this:

A quick comparison with 19th-century French culture, with its emphasis on progress, utopia and the rationalization of social systems, shows just how much the forward-looking perspective is lacking.

Recommended.

Gustave Flaubert on travel books

by  Tyler Cowen in

Only, travel writing as a genre is per se almost impossible.  To eliminate all repetitions you would have had to refrain from telling what you saw.  This is not the case in books devoted to descriptions of discoveries, where the author’s personality is the focus of interest.  But in the present instance the attentive reader may well find that there are too many ideas and insufficient facts, or too many facts and not enough ideas.

That is from his November 1866 letter to Hippolyte Taine, reproduced in the Francis Steegmuller collection.  Here is my recent post on why most travel books are not good enough.  Here is a 2006 MR post on which are the best travel books.

Interstate trade is relatively high in India

by  Tyler Cowen in

The first-ever estimates for interstate trade flows indicate a trade to GDP ratio of about 54 per cent, a number that is comparable to other large jurisdictions and that contradicts the caricature of India as a barrier-riddled economy; the ratio of India’s internal and international trade also compares favourably with others.  De facto, at least, India seems well-integrated internally.  A more technical analysis confirms this: trade costs reduce trade by roughly the same extent in India as in other countries.

When it comes to internal trade, the big negative outlier is in fact Indonesia.

That is all from the new and interesting Of Counsel: The Challenges of the Modi-Jaitley Economy, by the excellent Arvind Subramanian.

Sorry people, but I will always be an independent…

by  Tyler Cowen in

Senate Democrats are pushing back against attempts to pass a compromise bill in the lame-duck session that could speed the introduction of driverless cars onto U.S. roadways, saying it lacks safeguards that would protect drivers.

Link here, and I’m sure you know the House Democrats don’t want to pass the new NAFTA.

Elsewhere, in Chicago, the war on democracy continues:

To get on the ballot, Krupa was required to file 473 valid signatures of ward residents with the Chicago Board of Elections. Krupa filed 1,703 signatures.

But before he filed his signatures with the elections board, an amazing thing happened along the Chicago Way.

An organized crew of political workers — or maybe just civic-minded individuals who care about reform — went door to door with official legal papers. They asked residents to sign an affadavit revoking their signature on Krupa’s petition.

And the background?:

The David is David Krupa, 19, a freshman at DePaul University who drives a forklift part time. He’s not a political powerhouse. He’s just a conservative Southwest Side teenager studying political science and economics who got it in his head to run for alderman in a race that pits him against the most powerful [Democratic] ward organization in Chicago.

Here is the story, it’s not just North Carolina where electoral law is treated with less than the utmost respect.

p.s. if you think or write “false equivalency” in response to this post, you fail the Intellectual Turing test.

Tuesday assorted links

by  Tyler Cowen

1. Alex Zook tweet storm review of Stubborn Attachments.  Opener: “longterm-ism can be founded on many grounds, ranging from compounding economic growth to physics to intuitions about how to treat future generations. this felt *very* natural to me, and held stronger ground than typical moral philosophy arguments grounded in toy worlds”  And another review.  And here is the DC filtering of the Stubborn Attachments book party.

2. The new Hollywood trailer with Godzilla, Ghidrah, Mothra, and Rodan.  Let’s hope it is sufficiently morally serious.

3. AlphaFold.

4. Better not to know?

5. Addis Ababa photo fest.

6. New list of unacceptable French thinkers.

Fewer, Bigger Entrepreneurs Explains Rising Inequality

by  Alex Tabarrok in

Why has wealth inequality increased in the United States? A lot of semi-plausible but vague theories have been offered–changes in the tax code, the diminished role of unions and so forth–but there are surprisingly few fully-specified models. In an important paper, Mohsen Mohaghegh (on the job market) has a new answer.

Wealth inequality has risen considerably in the US since 1975. For instance, the wealth share of households in the top 1 percent of the distribution rose from 25 percent in 1975 to more than 37 percent in 2007. This paper builds on theories of entrepreneurship and wealth inequality to address changes in inequality in the US between 1975 and 2007.

In the data, there are two trends in entrepreneurship since 1975: the average debt-to-asset ratio among entrepreneurs has increased, and the number of entrepreneurs (the entrepreneurship rate) has fallen. I study how the distribution of wealth changes over time, when these two trends are accounted for in a model.

…[two] channels accounts for both the fall in the entrepreneurship rate and the rise in the entrepreneurs’ leverage: an increase in banks’ willingness to fund risky entrepreneurial projects and a rise in the costs of starting a business. When changes in entrepreneurship are accounted for, my model explains more than 90 percent of the rise in the share of wealth held by the top 1 percent of households, and just under half of the rise in the share of the top 0.01 percent of households in the data.

A lower rate of entrepreneurship implies that a smaller number of households can take advantage of their productive ideas. Active entrepreneurs, however, have access to more capital which allows highly productive entrepreneurs to expand their businesses. Both of these changes contribute to a rise in inequality over time.

Below are two figures from the paper showing the declining entrepreneurship rate and increasing leverage. Mohaghegh doesn’t explain these facts but he connects three literatures, declining entrepreneurship, increasing financialization and rising inequality and he shows that the first two of these well-known features of the US economy can explain a large share of the third, the rise in inequality.

Cohort effects and life expectancy and many other facts about the history of American medicine

by  Tyler Cowen in

The cohort reaching age 55 around 1982 (born around 1927) has significantly higher mortality than the cohort 10 years younger. That higher mortality continues through the cohort passing through that age range in the mid-1990s, roughly, when the cohort born in 1933 reaches age 65. That same cohort also has higher mortality when they are 65-74 and 75-84. The story is not one of selection – a handful of less healthy people who die and leave behind healthier stock. Rather, it seems that an entire generation was rendered vulnerable by being born during and just before the Great Depression (Lleras-Muney and Moreau, 2018).

That is from a new NBER history of health care paper by Maryaline Catillon, David Cutler, and Thomas Getzen.  This piece is interesting on virtually every page.  For instance, on the rise of American science:

Of the 18 Nobel Prizes in Physiology or Medicine awarded 1901-1920, none went to US researchers. Over the next two decades, four out of twenty-four did, then for the rest of the century, more than half.

Then:

…our analysis of Massachusetts data does not support a large impact of medical care supply on mortality in the pre-antibiotic era.

Using the best data I’ve seen to date, apart from RCTs, the authors conclude from their statistical work:

…there is little evidence that access to medical care plays a role in mortality over the entire 1965-2015 period, but it appears to have had an effect during recent years.

That is from p.33

Death rates from influenza/pneumonia and cancer seem most responsive to access to medical care.  And I had not known this:

The period from 1935 to 1950 saw the most…decline in infant and child mortality of any time period since 1900.  It is unclear how much of this change would have happened without antibiotics, but blood banking and advances in surgical techniques were among the host of distinct and incremental improvements that added to life expectancy while the health share of GDP increased only slightly.

Recommended.

Don’t arrest Chinese CFOs and CEOs

by  Tyler Cowen in

That is the topic of my latest Bloomberg column, here is just one short excerpt:

In the longer run, bringing charges against Meng is likely to accelerate the division of the world into two competing systems of law, technology and commerce — namely those of China and the U.S. That will encourage international relations to develop along the dimension of power — what can you get away with? — rather than law or orderly cooperation. The West’s dirty little secret is that the rule of law works well only when tempered with a high degree of discretion.

And:

At the margin, the legal reach and police power of the U.S. can always be invoked to fight another crime or resolve another corruption problem. Don’t like how FIFA — the international soccer federation — is being run? Get the U.S. in on the act. There are in fact laws that gave the U.S. jurisdiction over bad FIFA practices (wire fraud, racketeering, and money laundering), and the Department of Justice led a successful anti-corruption case starting in 2015.

That enforcement action seems to have gone fine, but where to stop? There a lot of wrongdoers who are connected, in one way or another, to the U.S. financial system. But America has more credibility as global policeman when it focuses on only the most pressing cases, such as when innocent victims are being killed.

Best yet, I offer remarks on Brexit as well.